When does a parent "control" its subsidiary's documents for disclosure purposes?

A company (the claimant) brought proceedings against a parent company (the parent) and its subsidiaries in relation to the allegedly unlawful enforcement of security.

After the claim was served, the parent sent letters to two of its subsidiaries requesting it be provided with “all the documents pertaining to [the claim] as requested by us or our advisers”. The subsidiaries agreed to this access by request arrangement.

The claimant subsequently discontinued its claim against the subsidiaries.  The claim continued against the parent and over a year later the parent wrote again to the two subsidiaries regarding document access.  This time the parent asked the subsidiaries to provide it with “open access” to their documents so it could “search for documents that relate to the issues in dispute”.  The subsidiaries refused this open access request.  No mention was made to the earlier access by request arrangements.

A dispute arose between the claimant and the parent as to whether the parent had control of the two subsidiaries’ documents for disclosure purposes.  The claimant said it did, either because wide-ranging control arrangements could be inferred from the facts or by virtue of the access by request arrangements.  The parent disagreed.  It said, as a matter of principle, an arrangement would only give rise to the requisite control where it provided an unfettered right of access to the documents in question.  No such right existed as the subsidiaries had refused the open access request and the access by request arrangements did not provide unfettered access and were, in any event, no longer current.

“Control” is widely defined

A party’s disclosure obligations in English civil litigation bite on all documents within its “control”.  Control is widely defined and “includes documents: (i) which are or were in a party’s physical possession; (ii) in respect of which a party has or has had a right to take possession; or (iii) in respect of which a party has or has had a right to inspect or take copies”.¹

No automatic control, but access arrangement sufficient

The court started by noting that a parent company does not automatically have control of its subsidiaries’ documents. To have control the parent either needs to have: (i) an enforceable legal right to access the documents; or (ii) an arrangement which provides, in practice, a right of access.  This arrangement does not need to be enforceable as a contract, but needs to be more than just that the subsidiary would probably provide the documents if asked.

To determine whether a subsidiary’s (or any third party’s) documents are within the “control” of a parent company by virtue of a standing consent, the court said it may be helpful to ask:

• What is the scope of the standing consent? Are the documents within its scope?
• What type of standing consent is it?  How is the party to get hold of the documents? Is the party to conduct its own searches or must it request the document (possibly to match certain criteria)?
• What is the quality of the standing consent? Does the party have an unfettered right of access – this can be to all documents or to particular documents?

On the facts of this case, the court ruled that the access by request arrangements constituted control for disclosure purposes.  They provided the parent with standing consent for upon request unfettered access to the subsidiaries’ documents relating to the claim.

Unrestricted access to the subsidiaries’ documents was not necessary for there to be control.  Sufficient control would exist even if the standing consent related to a single document.  It was not necessary for the standing consent to be enforceable as a contract.

The court dismissed the parent’s argument that the access by request arrangements were no longer current. The access by request arrangements were not conditional on the subsidiaries being defendants. Although the open access arrangements were rejected, there was no reference to prior arrangements being terminated when the open access arrangements were proposed and rejected.  Indeed the continuation of the access arrangements was not surprising given it was in the subsidiaries’ interests for the parent to have the material it needed to fight the claim.

What did the parent’s control of its subsidiaries’ documents mean for its disclosure obligations?  There is going to be a further disclosure hearing to decide this point, but the court was clear that it does not mean that the same disclosure obligations are imposed on the subsidiaries as for the parties.  It is not expected that they will have to retrieve or restore deleted files, or to conduct wide-ranging keyword searches across huge email or other electronic documentary records.

Comment

This judgment provides a salutary reminder that a parent may well have control of its subsidiary’s documents for disclosure purposes even where no enforceable legal right exists and where wholesale access is not granted. 

There is a risk that adverse inferences may be drawn against a parent which doesn’t make “sensible requests” for pertinent documents from its subsidiary. Although the court recognised that there is no obligation for a party to disclose documents which are not within its control, it warned that there are limited circumstances where adverse inferences could be drawn. These include: (i) where the reason why a sensible request was not made was because it would reveal the party did in fact have control of the third party’s documents; (ii) where (although this will very much turn on the facts) there is a lack of evidence and the third party holds documents going to the merits and that third party would have likely helped if requested; and (iii) where an arrangement which gave access was terminated because the third party held documents which would be unhelpful.

Interestingly, the court provided some important thoughts on Model C of the Disclosure Pilot Scheme.  Under this model the court may order a party to disclose particular documents or narrow classes of documents relating to a particular issue for disclosure.  The court observed that, for this model, the relevance of the documents to the issue for disclosure is determined at the time Model C disclosure is settled.  Once ordered, all documents which are responsive to the Model C request must be disclosed.  The court continued that a request for “any or all documents relating to” a topic is not a Model C request at all. If this is the correct understanding of Model C, the ambit of any Model C requests must be tightly drawn as there is no flexibility to hold back documents that are responsive to Model C but not relevant to the issues for disclosure.

_{¹ This definition is taken from the Disclosure Pilot Scheme (PD 51U), but very similar provisions appear in CPR 31.8.}

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication.  If you wish to receive this publication, please contact Amy Edwards, amy.edwards@allenovery.com